Being a plucky trailblazer can leave you spitting feathers
THERE is always a lot of talk about first mover advantage. But is it overrated? The benefits are quite clear: being first to the market means you may have a monopoly, with no competition. This allows you to charge a higher price than otherwise. The other big benefit is that your brand becomes strongly associated with that product. Customers’ reluctance to change sometimes means that they will stick to you even if new competition arises.
However, there are also disadvantages. Introducing a new product to market is notoriously difficult. Customers have to be convinced to change the way they are doing things. Sometimes, you convince some of the junior or technical people only to find that the more senior people reject your offering. Being first also means you have no real knowledge of how big the market might be. For a start-up, chasing these uncertain sales normally involves making a loss.
I have had companies with new techniques and products only to find that, once they started to establish a market and change peoples’ beliefs, new competition entered very quickly. It is very frustrating for a start-up to pave the way and show what can be done, only to find that, later, one of the big companies comes in and takes the market from you.
One company I had, which was involved in scanning chicken fillets for unwanted bones, did a lot of work to convert suppliers from using hand inspection to using X-ray technology, which was much more efficient. It is a huge market and, once some progress had been made and the suppliers started to consider making orders, they became concerned about using a small company. They actually commissioned some large companies to come up with competing technology. Even though my company had some patent protection, most of the uniqueness of its product was in the software, which is very difficult to protect. Effectively all we accomplished was to point out to the market the benefits of X-ray technology.
Another company I have, which produces high performance microchips, achieved a very significant order from a Tokyo university. It was a massive breakthrough for the company and everybody was very excited. We assumed that this would put us on the map and lead to many more orders. It had not come easily. We had spent a huge amount on research and development, and the order was done at a big discount to open up the new market. Again, all that happened was that a very large semiconductor company saw this sales activity and decided that they wanted to move into that space. They offered a similar product at an extremely competitive price – so low that we suspected they were actually taking a loss in order to win the market away from us.
In both of these cases I have actually regretted being the first mover. All it seems we did was to open up the market for others, with more money or a bigger reputation.
Richard Farleigh has operated as a business angel for many years, backing more early-stage companies than anyone else in the UK.
www.farleigh.com